Proposed Acqn of Select Pharma Laboratories Ltd

27 July 2015

Source BioScience plc

('Source BioScience', the 'Company')

PROPOSED ACQUISITION OF SELECT PHARMA LABORATORIES LTD

The Board of Source BioScience, the international laboratory services and products business, is delighted to announce that it has conditionally agreed to acquire the entire issued share capital of Select Pharma Laboratories Ltd ('Select') for a total cash consideration of up to £7.3 million.

The proposed acquisition is a Class 1 transaction under the Listing Rules and is therefore conditional, inter alia, upon the approval of the Company's shareholders at a General Meeting, details of which are set out below. The proposed acquisition is being part funded by the issue of 31,383,749 new ordinary shares, representing approximately 10% of the current issued share capital, at an undiscounted placing price of 14p per share.

Highlights

· Select is a European leader in pharmaceutical testing, including physical and chemical testing, and microbiological analyses for applications in therapeutics and healthcare products

· The Directors believe that the proposed acquisition will create one of Europe's strongest and most comprehensive businesses for integrated stability storage and stability testing services

· The enlarged Group will have the capability to offer an enhanced portfolio of bioanalytical laboratory services from facilities accredited by the Medicines and Healthcare products Regulatory Agency ('MHRA') and the US Food and Drug Administration ('FDA')

· Significant opportunities for cross-selling and geographic expansion are apparent for the enlarged Group which will operate from ten facilities in five countries

· To fund the proposed acquisition, the Company has conditionally raised £4.4 million in gross proceeds from existing and new investors, via a placing of new ordinary shares, and has secured a new debt facility of £3.5 million

· Initial consideration of £6.7 million (subject to an adjustment for working capital) will be satisfied by the use of the new debt facility and £3.2 million of the net proceeds of the placing

· The proposed acquisition is expected to be enhancing to underlying earnings per share in the first full year of ownership**

** This statement does not constitute a profit forecast nor should it be interpreted to mean that the earnings per share of Source BioScience for the first full year after the transaction will increase.

Dr Nick Ash, CEO of Source BioScience, said:

"The proposed acquisition of Select will provide the Company with the expertise and capability to provide stability testing services that are highly complementary with the Group's existing stability storage services.

"The Select team will bring significant experience and knowledge which will enable the Group to meet increasing demand for stability and pharmaceutical batch release testing services, from a broad spectrum of customers and from territories that Source BioScience does not currently address.

"This proposed acquisition fits squarely with our stated objective of continued expansion through targeted acquisitions, to enhance the breadth and depth of our portfolio of services, in conjunction with ongoing organic growth and development of the existing business."

For further information, please contact:

Source BioScience plc

Dr Nick Ash, CEO

Tel: +44 (0) 115 973 9010

www.sourcebioscience.com

N+1 Singer (Financial Advisor, Sponsor and Broker)

Aubrey Powell/James White

Tel: +44 (0)207 496 3000

www.n1singer.com

Proposed acquisition of Select Pharma Laboratories Ltd

Introduction

The Board is delighted to announce that it has conditionally agreed to acquire the entire issued share capital of Select for a total cash consideration of up to £7.3 million, of which up to £0.6 million is deferred for two years. The total expenses of the transaction, including funding costs, are anticipated to amount to £0.5 million. The Company has conditionally raised approximately £4.4 million in gross proceeds from existing and new investors, via the placing, in addition to securing £3.5 million of new debt to finance the initial consideration of £6.7 million and the expenses of the transaction. Approximately £0.7 million of excess placing proceeds will be available, in combination with existing retained cash resources, to drive additional organic growth or acquisitive growth opportunities for the enlarged Group.

Information about Select

Select is a private, owner-managed, UK-based provider of stability storage and stability testing laboratory services. The business is profitable, cash generative and debt-free. Select has grown consistently in recent years to become a leading European provider of stability testing with attractive, sustained operating margins and a robust, growing sales pipeline.

Select offers its customers access to accredited pharmaceutical testing including chemistry, physical and microbiological analyses for application in therapeutics batch release and product release to the EU market, in which it is a leading player. Select operates in a highly regulated industry from GMP-accredited facilities, holding accreditations with the MHRA and FDA.

Batch release and product release involve the regulatory certification of batches of medicinal products by a Qualified Person prior to sale or supply. The testing ensures that each batch is in accordance with the relevant requirements. Select's testing services provide the business with embedded status in customers' product supply chains, providing good visibility on business volumes from existing customers.

The business serves an array of international markets and its customers include contract drug manufacturers, top European generics distributors and UK and EU importers of medicinal products. Its specialty testing capability includes oncology and sterile medicinal products. Select is located in close proximity to Source BioScience's existing operations in Scotland.

The Directors believe that the proposed acquisition will be earnings enhancing in the first full year of ownership. This statement does not constitute a profit forecast and should not be interpreted to mean that the earnings per share of Source BioScience for the first full year after the transaction will increase.

A summary of the trading results and financial position for each of Select's financial years ended 31 March 2012, 2013 and 2014 is set out below. This summary financial information has been extracted from the historical financial information contained in the circular being sent to shareholders in connection with the proposed acquisition, which has been prepared in accordance with the requirements of the Listing Rules

Since the last available filed accounts for the year ended 31 March 2014, Select has continued to trade in line with the previously observed performance. Select continues to benefit from increasing demand from contract generics manufacturers and therapeutic drug importers for access to accredited laboratory testing to support drug import license applications. The EU generally, and UK specifically, represents a significant target market for such customers and Select holds the required accreditations and has an established expertise and track record, for high quality testing and therapeutic compound certification.

Background to and reasons for the proposed acquisition

The Group's ongoing strategy is to grow its laboratory services and products business organically combined with carefully selected acquisitions when the opportunities arise, building on the strong foundations now established in the business. The Directors intend to improve the Group's market position and share by increasing the range of services and products that it offers. Over the last two years Source BioScience has successfully transformed the breadth of its operations, its laboratory services and its laboratory products portfolio. This has been made possible by the rapid integration of the recent acquisitions of the serology products and stability storage businesses.

The Board believes that Select represents a significant opportunity in the context of the Group's stated growth and acquisition strategy as it meets a number of the Group's acquisition criteria. Furthermore, the proposed acquisition adds additional skills and services to the growth platform which has been created in the Group and strengthens the proposition to biopharma, healthcare products and regenerative medicine customers.

The Board considers Select to be an excellent fit with Source BioScience as it considerably enhances the Group's laboratory services offering and believes that the proposed acquisition will provide a number of commercial, financial and operational benefits which are expected to create additional value for the Company's shareholders.

Enhanced laboratory service offering

Source BioScience has an established laboratory services portfolio providing environmentally controlled storage, including stability storage and cryogenic storage, to the biopharma and healthcare products industries.

In addition to environmentally controlled storage, Source BioScience offers a portfolio of complementary laboratory analyses, utilising tissue-based and genomic technologies. This existing suite of expertise has particular application to pre-clinical and clinical trial samples, both upstream and downstream to our storage activities, which adds value to our offering.

Select provides a further range of laboratory analyses that would complement those currently offered by Source BioScience; applying physical, chemical and microbiological analysis to therapeutic compounds and samples.

The combination of the Company's genomic and tissue-based laboratory analytical services with Select's physical, chemical and microbiological analytical services will add breadth and depth to the Group's services portfolio, enabling customers to access a single point of provision of outsourced services that meets a substantial element of their testing requirements.

This will strengthen the Group's proposition to global biopharma, healthcare product manufacturers and medical research/regenerative medicine customers, areas in which Select is already proven.

Vertical integration

As a result of the proposed acquisition, the enlarged Group will be able to offer a vertically integrated solution to customers, providing environmentally controlled storage in combination with an enhanced portfolio of laboratory analyses both upstream and downstream to the stability storage offering.

The ability to access stability storage products and laboratory analyses from a single, accredited provider enables customers to streamline the number of service providers and de-risk the process by avoiding unnecessary sample transfers, and minimise logistical administration (compared with using separate storage and testing service providers in different locations). The Board believes that there is significant demand for such an integrated offering, based on feedback from customers and prospects over the last several years.

The enlarged Group will operate a network of stability storage and laboratory facilities extending across the UK and Ireland and the East and West coasts of the USA. This will enable customers to access a seamless, vertically integrated outsourced solution with consistently-applied laboratory analyses across key geographies.

Expanded customer base and cross-selling

Significant cross-selling opportunities are apparent for the enlarged Group through the offer of an enhanced range of laboratory services to existing Source BioScience customers. Many of Source BioScience's existing stability storage customers currently procure stability testing and other physical, chemical and microbiological analyses from other laboratory service providers. The proposed acquisition presents the opportunity for Source BioScience to provide these laboratory services to customers.

Select currently undertakes the laboratory analysis for customer compounds and samples that have been subject to an environmentally controlled storage programme, including stability storage. The enlarged Group will have the potential to offer an outsourced environmentally controlled storage solution for these Select customers in addition to conducting the laboratory analysis.

Select also provides laboratory analyses for applications in batch release and product testing for customers wishing to obtain a license to import, or market, therapeutics in the EU. Its customers do not currently use the existing Source BioScience laboratory and stability storage services offering and this represents a major new opportunity for the enlarged Group. This opportunity extends the Group's presence into new markets including India, the Far East and China where Select currently has a commercial presence but which represent untapped markets for Source BioScience.

Post-acquisition strategy

Source BioScience and Select bring together complementary skills and expertise, which will enable the enlarged Group to enhance its position as a leading provider of laboratory services. Select will be fully integrated into the Group, enhancing its capability to deliver a broader range of high value testing services.

Source BioScience will benefit from the enhanced portfolio of laboratory analyses and expertise that Select provides and in addition will be able to access new markets and customers for those services. At the same time, Select will gain access to existing clients of the Group with substantial volumes of therapeutic and other compounds currently stored under environmentally controlled conditions at Source BioScience's sites, which will require analytical testing, including batch release testing.

The senior management of Select will stay with the enlarged Group and, in the Board's view, will contribute considerably to the depth and experience of the Group's team. This will enable Source BioScience to address the opportunity presented by new customers in new markets and to access new geographies. Select also has an outstanding reputation for quality which is entirely consistent with the environment and ethos at Source BioScience.

Satisfaction of deferred consideration

Deferred consideration of up to £0.6m is payable two years from completion, of which £0.1 million is payable subject to the performance of the Source BioScience share price. It is intended that the deferred consideration will be met from the future cash resources of the Company.

Financial effects of the proposed acquisition

The circular to be posted to shareholders in connection with the acquisition will contain details of the financial effects of the transaction on the Company, including the funding arrangements. The terms of the new debt facility are materially similar to those entered into in 2013. For illustrative purposes only the circular contains an unaudited pro forma statement of net assets of the enlarged Group, assuming completion of the acquisition had occurred as at 31 December 2014, showing unaudited pro forma net assets of the enlarged Group of £30.2 million, including net debt of £7.2 million.

Outlook

There is growing demand from the biopharma industry to simplify and shorten the product development to product approval process. Access to individual suppliers that can deliver a vertically integrated laboratory services solution, addressing multiple elements of the product development pipeline is key to this accelerated pathway and key to de-risking the supply chain.

The enlarged Group will be able to offer an integrated solution to customers, providing environmentally controlled storage in combination with an enhanced portfolio of both upstream and downstream laboratory analyses.

Laboratory analytical testing of product currently stored within the Source BioScience environmentally controlled stability storage suites will fall under the existing capability of Select and further enhance revenue from these activities.

In addition, the Board believes that the enlarged Group will retain the flexibility to realise its additional organic growth objectives and targeted investment opportunities following the proposed acquisition and that Source BioScience will have greater access to funding and other resources required to pursue its strategy.

Completion

Completion of the proposed acquisition will take place on admission of the new ordinary shares to be issued in connection with the Placing and is conditional on the new debt facility becoming unconditional and the satisfaction of certain other terms and conditions as detailed more fully in Part V of the circular being issued shortly. If any such conditions are not satisfied on or before 31 August 2015 or, if applicable, waived, the acquisition will not proceed.

The Placing is not subject to shareholder approval and is being made under existing authorities to allot the new shares on a non pre-emptive basis. In the event that the acquisition is not approved by shareholders, the Placing will not complete and the Company will not have use of the net proceeds of the Placing.

General Meeting

The acquisition constitutes a Class 1 transaction for Source BioScience under the Listing Rules and therefore requires and is conditional, inter alia, upon the approval of shareholders. Accordingly, a General Meeting will be convened for this purpose and will be held at 1 Orchard Place, Nottingham Business Park, Nottingham NG8 6PX on 14 August 2015 at 10.00am. The notice of General Meeting will be set out in the circular, which will be posted to shareholders shortly.

Expected timetable of principal events

Each of the times and dates in the table below is indicative only and may be subject to change.

The times and dates set out in the expected timetable of principal events above may be adjusted by Source BioScience, in consultation with N+1 Singer, in which event details of the new times and dates will be notified to the UK Listing Authority and the London Stock Exchange and will be announced via a Regulatory Information Service.

Information on the Placing

The new ordinary shares represent approximately 10% of the Company's existing issued share capital and will represent approximately 9.1% of the Company's enlarged issued share capital following the placing. The new ordinary shares will be credited as fully paid and will rank pari passu in all respects with the existing ordinary shares. The new ordinary shares may be held in certificated or uncertificated form.

The Placing was heavily oversubscribed but capped at approximately £4.4 million in gross proceeds being the maximum amount within the Company's existing authority to allot new shares on a non-preemptive basis and without triggering the need for a full prospectus.

Application will be made to the UK Listing Authority for the new ordinary shares to be admitted to the premium listing segment of the Official List and to the London Stock Exchange for the new ordinary shares to be admitted to trading on the London Stock Exchange's main market for listed securities. It is expected that admission will become effective and that dealings in the new ordinary shares will commence on the London Stock Exchange at 8.00am on 17 August 2015.

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About Source BioScience

Source BioScience plc (LSE: SBS) is a trusted provider of state of the art laboratory services and products to the healthcare and clinical, life and applied sciences and biopharma industries. It is an international business operating nine state of the art facilities in five countries and with customers in over 90 countries worldwide. The Group offers a complementary portfolio of laboratory services and products that share common technologies, laboratory processes, infrastructure and expertise. These include clinical diagnostics, genomics, proteomics, drug discovery and development research as well as controlled environment storage and testing services for a diverse range of markets. These services and products are provided to a large and diverse customer base including the top 50 pharmaceutical companies, leading universities and research institutes worldwide, the UK NHS and other healthcare providers. The Group is listed on the Premium Main Market of the London Stock Exchange.